Why is it sometimes assumed that CAPX equals depreciation in the later stages of a project? How does expected inflation affect this assumption?
What will be an ideal response?
As a project matures, there are no more planned investments in which case the scale of the project is fixed. But, the physical plant and equipment have an economic lifetime and must be replaced. If accounting depreciation matches economic depreciation, setting CAPX equal to depreciation is appropriate. You should be aware that accounting depreciation often fails to match economic depreciation because of inflation. The higher the rate of inflation, the more severe this problem is unless the accounting depreciation is indexed to inflation in some way. Because CAPX will be spent on real plant and equipment, the nominal amount of expenditures may be somewhat greater than the amount the accounts are allowed to deduct for the book value of depreciation.
You might also like to view...
Which statement about globalization is true?
a. It has led to more quotas on trade around the world. b. It is a purely economic term used to describe interrelated global markets. c. It has been fueled by trade, immigration, and foreign investment. d. It is the process by which more countries are becoming economically self-sufficient around the globe.
Required: Prepare a schedule of cost of goods manufactured for Varda, Inc. using the format below.
Varda, Inc. used $213,000 of direct materials and incurred $111,000 of direct labor costs during the
year. Indirect labor amounted to $8,100, while indirect materials used totaled $4,800. Other operating
costs pertaining to the factory included utilities of $9,300; maintenance of $13,500; repairs of $5,400;
depreciation of $23,700; and property taxes of $7,800. There was no beginning or ending finished goods
inventory. The Work-in-Process Inventory account reflected a balance of $16,500 at the beginning of the
period and $22,500 at the end of the period.
Path–goal theory suggests all of the following except ______.
A. that task and subordinate characteristics affect leadership effectiveness B. that leaders should help subordinates around their difficulties by removing obstacles C. that subordinates with an external locus of control should be directed D. that leaders need confidence and articulateness
Which of the following theories assumes that the owners and the firm are virtually identical?
a. Residual equity theory b. Proprietary theory c. Entity theory d. Commander theory